CMS Issues Proposed Guidance Directing Health Plans to Account for Risk Corridors Judgment in Recalculated 2015-2018 MLR Reporting

On September 30, CMS issued proposed guidance relating to the government’s long overdue payment of amounts owed under the ACA’s “risk corridors” program for purposes of calculating health plans’ medical loss ratios (MLR). By way of background, health plans in the individual and small group markets must report premium and expense data after each benefit year and achieve a minimum 80% MLR. That is, 80 cents of every dollar of premium revenue (less state and federal taxes and licensing or regulatory fees) must be spent on clinical services or activities that improve health care quality. Health plans that do not meet the minimum MLR are required to issue rebates to policyholders in the amount of the difference.

After CMS failed to make full payments under the “risk corridors” program between 2015-2017 in the amount of $12.7 billion, health insurers sued and ultimately achieved victory at the Supreme Court in Maine Community Health Options et al. v. United States (a C&M case). As the federal government now must pay health plans in the wake of the Supreme Court’s decision, the proposed guidance would require issuers to characterize the judgment as “risk corridors” payments attributable to the 2015-2018 MLR reporting years.

MLR reporting regulations require health plans to adjust reported claims expenses for, inter alia, receipts related to the risk corridors program. For example, the 2014 benefit year was reported in July 2015. Initially, CMS directed plans to report the full expected value of the risk corridors payment for 2014 in the 2015 MLR reporting—plans did not yet know they would receive only about $0.13 for every dollar owed to them for the 2014 risk corridors benefit year. Subsequently, when CMS realized it would not be able to make full payments, CMS directed plans to report only the actual payments received for the 2014 benefit year and to record $0 for the 2015 and 2016 benefit years. CMS used collections under the risk corridors program for the 2015 and 2016 benefit years to pay down some of the outstanding amounts owed for the 2014 benefit year.

MLR reporting occurs in the July following the end of the benefit year and uses three years of data. As a result, when plans changed the reported risk corridors amount for the 2014 benefit year from the expected amount to the actual amount in 2016 and reported $0 in for 2015, this impacted the 2015 – 2018 reporting years. Some plans opted to report more than the actual risk corridors payments (even up to the full amount of their expected risk corridors receivables) during the 2015 – 2018 MLR reporting period. As a result, recalculating MLR for the 2015 – 2018 reporting years in accordance with the guidance may have little to no impact on those plans.

The proposed guidance directs plans to submit a revised MLR report for the 2015 – 2018 reporting years for each state, market, and year if the plan has an increased rebate liability after calculation of the MLR including the risk corridors judgment amounts. The guidance also would require plans to calculate the revised MLR using the full value of the risk corridors monies owed to the plan. Plans would be required to submit their revised reporting forms by the later of December 31, 2020 or within 60 days of receiving the payment of the judgment characterized as by the guidance as an additional risk corridors payment, and make “good faith efforts” to locate and pay any rebates owed to their policyholders during the 2015 – 2018 reporting years. CMS requested comments, to MLRQuestions@cms.hhs.gov, on the proposed guidance by October 21, 2020.